DuPont (DD) reported its second quarter earnings on Tuesday, posting a 12% decline primarily attributable to its faltering Performance Chemicals segment. The unit, which manufactures products such as titanium dioxide, a whitening pigment, and Teflon coating, generated $7.2 billion in 2012 but hasn’t fared so well this year. While titanium dioxide volume increased by 12% from second quarter 2012 and by 18% from the previous quarter, the unit was still negatively impacted by lower prices. Additionally, price declines for fluropolymers and refrigerants contributed to a 55.6% decline in operating earnings.
Overall, DuPont’s Performance Chemicals sales dropped by 9% this quarter. The company’s second quarter net income totaled $1.03 billion, or $1.11 per share, versus $1.17 billion, or $1.23 per share, during the same period last year. Following the earnings report, the chemical giant announced its plans to explore a spin-off, sale, or other options for the businesses within the Performance Chemicals unit. CEO Ellen Kullman stated that the company is “carefully weighing the strong cash generation of our Performance Chemicals businesses against their cyclicality and lower growth profile."
DuPont’s struggles within its Performance Chemicals segment inspired us to take a closer look at the chemicals industry. We wanted to see if the company's peers had encountered similar obstacles within their Performance Chemicals segments and, if so, how successful they were in overcoming those challenges.
To begin, we constructed a universe comprised of stocks belonging to the chemicals - major diversified industry. We then screened for stocks that are rallying above their 20-day, 50-day, and 200-day moving averages, which indicates that these stocks have strong upward momentum.
Next, we decided to incorporate a metric that analyzes past performance In order to give some context for the stocks’ upward momentum. By screening for stocks that have outperformed over the last quarter, with over 15% return, we’ve isolated the firms that have done well in the past and are likely to continue to do well.
We were left with three chemical stocks on our list.
Click on the image below to see sales data over time. Quarterly sales data sourced from Zacks Investment Research.
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Do you think these companies will continue to outperform despite the challenges facing the performance chemicals market? Use this list as a starting point for your own analysis.
1. Aceto Corp. (ACET, Earnings, Analysts, Financials): Engages in sourcing, quality assurance, regulatory support, marketing, and distributing chemically derived pharmaceuticals, biopharmaceuticals, specialty chemicals, and crop protection products.
Market cap at $423.7M, most recent closing price at $15.09.
Performance over the last quarter at 48.15%.
The stock is currently rallying 4.97% above its 20-day MA, 14.39% above its 50-day MA, and 39.17% above it 200-day MA.
The company released its third quarter fiscal year 2013 earnings on May 10th. Aceto reported a record $150.9 million in revenue, which reflects a 24.3% year-over-year increase from the same period in 2012. Per The Motley Fool, Aceto’s revenue beat the analysts’ estimate of $136.8 million, and its EPS of $0.34 exceed the estimated $0.26 per share.
While sales in Aceto’s Performance Chemicals division were unchanged from third quarter fiscal year 2012, margins shrank to 13.4% from last year’s 15.5%. As a result, the division had $7.1 million in gross profit in the most recent quarter versus $8.2 million last year. CEO Salvatore J. Guccione stated that the decline was “due primarily to product mix within the segment”.
2. FutureFuel Corp. (FF, Earnings, Analysts, Financials): Engages in the manufacture and sale of specialty chemicals and bio-based products primarily in the United States.
Market cap at $677.4M, most recent closing price at $15.74.
Performance over the last quarter at 27.26%.
The stock is currently rallying 7.45% above its 20-day MA, 9.35% above its 50-day MA, and 25.62% above it 200-day MA.
On May 7th, FutureFuel reported its first quarter 2013 earnings on May 7th, and according to Wall St. Cheat Sheet, the company beat the average analysts’ estimates in both revenue and EPS. The company generated $92.2 million in revenue during the quarter, which is a 7.55% gain from the same period last year and exceeds the estimate of $82.25 million. FutureFuel’s adjusted EPS was $0.33, topping the $0.19 estimate and reflecting a 94.12% leap from $0.17 EPS in the first quarter of 2012.
The company generated $40.5 million in chemical revenues, up 4% from $38.4 million during the first quarter of 2012. In the earnings conference call, Principal Financial Officer Rose Sparks noted that sales volumes for diisoproplybenzene chemical intermediates decreased by 14%, and the company saw an 11% drop in other performance chemicals “due to a shift in the orders of campaign products.”
3. Air Products & Chemicals Inc. (APD, Earnings, Analysts, Financials): Provides atmospheric gases, process and specialty gases, performance materials, equipment, and services worldwide.
Market cap at $20.98B, most recent closing price at $100.50.
Performance over the last quarter at 19.04%.
The stock is currently rallying 5.39% above its 20-day MA, 6.20% above its 50-day MA, and 15.91% above it 200-day MA.
The company released its fiscal third quarter 2013 earnings on July 23rd, surpassing expectations in revenue and EPS. Air Products generated $2.55 billion in revenue during the quarter, which is 9% higher than the revenue reported in the same period last year. The company’s $2.55 billion in revenue is also higher than the average analysts’ estimate, which, according to The Motley Fool, was $2.53 billion. Its EPS came in at $1.36, which met expectations.
Air Products’ Electronics and Performance Materials division reported $566 million in sales, reflecting a 6% year-over-year decline. The company attributed most of the loss to “lower Electronics process materials volumes and equipment sales.” On the other hand, sales increased by 3% sequentially from $549 million in the previous quarter.
(List compiled by Mary-Lynn Cesar. All data sourced from Finviz.)
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